Deutsche fines spook investors

Deutsche Bank’s biggest shareholders, the Qatari royal family, have expressed concern about the threat of legal fines.

Deutsche Bank headquarters in Frankfurt, Germany.

Deutsche Bank’s biggest shareholders, investment vehicles controlled by the Qatari royal family, have expressed concern about the threat of legal fines against the lender and whether it is adequately focused on its long-term strategy.

People briefed on communications involving Sheik Hamad bin Jassim al-Thani and his staff said he remained supportive of chief executive John Cryan and Deutsche Bank’s chairman, Paul Achleitner.

At the same time, the sheik has sought assurances that the bank is doing everything possible to resolve looming settlements with the US Justice Department while also managing the business.

Keeping the Qatari investors pleased is a vital mission for Mr Cryan. The bank has repeatedly said it didn’t need to raise fresh capital. But if its fortunes turn further for the worse, it might not have a choice — and the Qataris could be an obvious place to turn for new funds. They have described themselves as long-term shareholders, but haven’t sat idly by during Deutsche Bank’s turmoil this year.

Attracting private investors is key. Aides to German Chancellor Angela Merkel have told politicians the state wouldn’t take a stake in Deutsche Bank if it were to issue new stock. Partly at Germany’s urging, the European Union has moved since the eurozone debt crisis to restrict taxpayer funded bailouts of banks.

One source said the Qataris view a potential recapitalisation as a possible investment opportunity. They have discussed with other sovereign funds about joining in any investment.

The Qataris ploughed €1.75 billion ($2.52bn) into Deutsche in mid-2014 as part of an €8bn capital increase, paying €29.20 a share. More recently, the sheik boosted his family’s vehicles’ stake to near 10 per cent, becoming its top shareholder.

Deutsche Bank’s shares have fallen 45 per cent this year and now are trading near €12. Not accounting for hedges and other factors that people familiar with the Qataris’ investment say have softened their losses, the share-price decline alone implies a hit of around €1bn.

The sheik, a former prime minister, controls an investment vehicle through which the Qatari royal family holds some of its Deutsche Bank shares.

The Qataris haven’t behaved like activist investors with Deutsche Bank, in that they haven’t tried to get involved in operational or management matters. They have reiterated their patience as long-term shareholders, with an interest in even eventually boosting their stake further, the people say.

But they are concerned about an erosion of profits and loss of talent in key businesses like investment banking and asset management.

The Qataris’ concerns increased after The Wall Street Journal reported September 15 that the Justice Department suggested Deutsche Bank pay $US14 billion to settle longstanding mortgage-securities cases, the people said.